2024 (6) TMI 1357 - AT - Income Tax

Assessment u/s 153A OR 153C - As argued adjustments in the instant appeal is either subject matter of regular assessment or probably can be assessed u/s 153C with no reference to any incriminating material found in the course of search from the premises of the assessee with reference to impugned additions. Whether while making assessment u/s153A the Revenue is entitled to interfere with unabated assessment which stood concluded either under section 143(1) or under section 143(3) and not pending at the time of search in the absence of any incriminating material unearthed as a result of search in the case of assessee? - HELD THAT - It is manifest that additions/disallowances have been made without reference to any specific incriminating material/document found as a result of search and seizure action under section 132 of the Act and such additions are solely based on appraisal report against the subscribers of the assessee in the course of search in that case. Some additions have been made in the course of routine inquiry at the time of assessment u/s 153A without showing any correction to the incriminating material unearthed in the course of search. Guided by the principles laid down in Abhisar Buildwell (P.) Ltd. 2023 (4) TMI 1056 - SUPREME COURT as followed by the Co-ordinate Benches in numerous cases we find force in the legal plea raised on behalf of the assessee. Hence in the absence of any incriminating material in an unabated assessment additions / disallowances made by AO in the captioned appeal require to be quashed. Assessee appeal allowed. Addition u/s 69C - disallowance towards bogus purchases - HELD THAT - We take notice of the fact that the expenditure incurred in the instant case are capital expenditure and therefore no addition as proposed could be made to the taxable income towards such capital expenditure. Secondly as pointed out on behalf of the assessee and corroborated by the copy of invoices and the ledger account it is evident that the impugned purchases relate to financial year other than F.Y. 2011-12 relevant to A.Y. 2012-13 in question. Therefore disallowance if any is not permissible in the A.Y. 2013-14 under adjudication. Inapplicability of Section 69C as well as Section 68 - A bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by the assessee and such credit has to be of sum during the year for which the assessee either offers no explanation about the nature of source of such credit or the explanation offered towards source of such credit is not found to be satisfactory in the opinion of the AO. When objectively seen with reference to material available on record it is evident that the present case relates to outgo or payment on account of expenditure which is squarely opposite to the credit in the books of account. Apparently Section 68 would not apply in the absence of any credit in the books of account in relation to impugned additions. On the similar footings Section 69C also do not apply since Section 69C is confined to a situation where source of expenditure incurred could not be objectively explained to the satisfaction of the AO. In the instant case what being disallowed is the expenditure incurred and not the source of payment towards such expenditure. Neither Section 68 nor Section 69C is applicable in the present case. CIT(A) has modified and broadened the charge to encompass application of Section 68 of the Act. While doing so no opportunity was given to the assessee to counter such proposal. The exercise of purported coterminus power in such manner is not permissible in law. On this ground also the action of CIT(A) needs to be set aside. In summation the impugned additions cannot be countenanced where neither the expenditure has been claimed as revenue expenditure nor such expenditure relates to assessment year in question and such action is impermissible on the contours of Section 68 as well as Section 69C invoked by the Revenue Authorities. Assessee appeal allowed.

Summary

Issues Involved:
1. Jurisdiction under Section 153A(1)(b) of the Income Tax Act, 1961.
2. Validity of additions/disallowances in the absence of incriminating material.
3. Applicability of Section 69C and Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 153A(1)(b) of the Income Tax Act, 1961:
The assessee challenged the jurisdiction usurped by the Assessing Officer (AO) under Section 153A(1)(b) of the Act. The primary contention was that the assessment was completed before the search, and thus, the additions/disallowances made had no rational connection to the material found during the search. The Tribunal emphasized that the assessment for A.Y. 2009-10 was concluded before the search and therefore, should not be reopened unless incriminating material was found during the search, which was not the case here.

2. Validity of Additions/Disallowances in the Absence of Incriminating Material:
The Tribunal noted that the AO made additions based on an appraisal report from a third party (Mr. Tarun Goyal) obtained post-search, which indicated that certain entities were involved in providing entries to convert unaccounted money into share capital and share premium. However, no incriminating material was found during the search at the assessee's premises. The Tribunal held that in the absence of any incriminating material found during the search, the AO could not make additions under Section 153A. The Tribunal relied on the landmark judgment in the case of Pr. CIT vs. Abhisar Builwell (P.) Ltd, which restricted the scope of assessment under Section 153A to incriminating material found during the search.

3. Applicability of Section 69C and Section 68 of the Income Tax Act, 1961:
For A.Y. 2013-14, the AO invoked Section 69C to disallow expenses claimed based on bills from M/s. Shubham Enterprises and M/s. Raoyal Sales Corporation, alleging them to be sham transactions. The CIT(A) confirmed the additions and also invoked Section 68. The Tribunal observed that the expenditures were capital in nature and thus should not increase the taxable income. Furthermore, the Tribunal noted that the invoices related to a different financial year (F.Y. 2011-12), making the disallowance in A.Y. 2013-14 impermissible. The Tribunal also held that Section 69C was inapplicable as there was no unexplained source of expenditure. Similarly, Section 68 was inapplicable as it pertains to credits in the books, not debits. The Tribunal criticized the CIT(A) for modifying the assessment basis without providing the assessee an opportunity to respond, deeming such exercise of co-terminus power impermissible.

Conclusion:
The Tribunal quashed the additions/disallowances made by the AO for both A.Y. 2009-10 and A.Y. 2013-14, citing the absence of any incriminating material found during the search and the improper application of Sections 69C and 68. Both appeals by the assessee were allowed.